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What drives urban consumption in mainland china? The role of property price dynamics

  • Chen, Yu-Fu
  • Funke, Michael
  • Mehrotra, Aaron

This paper adds to the literature on wealth effects on consumption by disentangling house price effects on consumption for mainland China. In a stochastic modelling framework, the riskiness, rate of increase and persistence of house price movements have different implications for the consumption/housing ratio. We exploit the geographical variation in property prices by using a quarterly city-level panel dataset for the period 1998Q1 – 2009Q4 and rely on a panel error correction model. Overall, the results suggest a significant long run impact of property prices on consumption. They also broadly confirm the predictions from the theoretical model.

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File URL: http://repo.sire.ac.uk/handle/10943/283
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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2011-50.

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Date of creation: 2011
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Handle: RePEc:edn:sirdps:283
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  1. Karl E. Case & John M. Quigley & Robert J. Shiller, 2001. "Comparing Wealth Effects: The Stock Market versus the Housing Market," Cowles Foundation Discussion Papers 1335, Cowles Foundation for Research in Economics, Yale University.
  2. Yu-Fu Chen & Michael Funke & Aaron Mehrotra, 2011. "What Drives Urban Consumption In Mainland China? The Role Of Property Price Dynamics," Dundee Discussion Papers in Economics 255, Economic Studies, University of Dundee.
  3. Monika Piazzesi & Martin Schneider & Selale Tuzel, 2006. "Housing, Consumption, and Asset Pricing," NBER Working Papers 12036, National Bureau of Economic Research, Inc.
  4. Carroll, Christopher D. & Otsuka, Misuzu & Slacalek, Jiri, 2010. "How large are housing and financial wealth effects? A new approach," Working Paper Series 1283, European Central Bank.
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  6. Koivu, Tuuli, 2010. "Monetary policy, asset prices and consumption in China," Working Paper Series 1240, European Central Bank.
  7. Skinner, Jonathan, 1989. "Housing wealth and aggregate saving," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 305-324, May.
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  11. Chamon, Marcos & Prasad, Eswar, 2007. "Why Are Saving Rates of Urban Households in China Rising?," IZA Discussion Papers 3191, Institute for the Study of Labor (IZA).
  12. International Monetary Fund, 2010. "Are House Prices Rising too Fast in China?," IMF Working Papers 10/274, International Monetary Fund.
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  19. Joanne Cutler, 2004. "The Relationship between Consumption, Income and Wealth in Hong Kong," Working Papers 012004, Hong Kong Institute for Monetary Research.
  20. Joanne Cutler, 2004. "The Relationship between Consumption, Income and Wealth in Hong Kong," Macroeconomics 0403013, EconWPA.
  21. Martin Lettau & Sydney Ludvigson, 2003. "Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption," NBER Working Papers 9848, National Bureau of Economic Research, Inc.
  22. Bostic, Raphael & Gabriel, Stuart & Painter, Gary, 2009. "Housing wealth, financial wealth, and consumption: New evidence from micro data," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 79-89, January.
  23. John D. Benjamin & Peter Chinloy & G. Donald Jud, 2004. "Real Estate Versus Financial Wealth in Consumption," The Journal of Real Estate Finance and Economics, Springer, vol. 29(3), pages 341-354, November.
  24. Andreas Lehnert, 2004. "Housing, consumption, and credit constraints," Finance and Economics Discussion Series 2004-63, Board of Governors of the Federal Reserve System (U.S.).
  25. Hiebert, Paul & Roma, Moreno, 2010. "Relative house price dynamics across euro area and US cities: convergence or divergence?," Working Paper Series 1206, European Central Bank.
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